Modeling the Stock Market prior to large crashes

Anders Johansen; Didier Sornette

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Modeling the Stock Market prior to large crashes

Anders Johansen·Didier Sornette

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Abstract

We propose that the minimal requirements for a model of stock market price fluctuations should comprise time asymmetry, robustness with respect to connectivity between agents, ``bounded rationality'' and a probabilistic description. We also compare extensively two previously proposed models of log-periodic behavior of the stock market index prior to a large crash. We find that the model which follows the above requirements outperforms the other with a high statistical significance.

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Anders Johansen, Didier Sornette. 1998-11-05. Modeling the Stock Market prior to large crashes. https://arxiv.org/abs/cond-mat/9811066

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